Business Succession Planning Company Power of Attorney

It is of importance for all company directors to consider the value of appointing a ‘Company Power of Attorney’. A Company Power of Attorney is an integral legal document created by a company authorising a person to act on its behalf, including signing documents on its behalf. For companies, specifically small companies, an issue arises when a director of a Company becomes ill or dies. In the absence of an empowered person, companies often face issues such as the inability to make contracts, the inability to finalise deals, the freezing of finances and more. To avoid such issues the appointment of a Company Power of Attorney is essential.

What is a Company Power of Attorney?

A Company Power of Attorney is a legal instrument that enables a Company to appoint an individual to act on the company’s behalf, particularly in regard to cases where the director(s) are not capable of doing so. A Company can appoint any adult person to this role. However, the appointed ‘attorney’s’ power is limited to the same powers afforded under individual Power of Attorney documents. In exercising those powers, the individual ‘appointed’ must always act in the best interests of the Company.

Section 124 of the Corporations Act 2001, gives all companies registered in Australia the legal capacity and powers of an individual. Therefore, a company can appoint agents and attorneys to act on its behalf. To be valid, the power of attorney must be completed in the form required under the relevant state laws, i.e., Power of Attorney Act (NSW) 2003), and subsequently signed by the director(s) in accordance with Section 127 of The Corporations Act. Therefore, the only way in which a Company may empower someone on behalf of the Company is by way of appointing a Company Power of Attorney.

Ideally, the directors of the company should pass a resolution to authorize the appointment of an attorney.

Death of a director and the absence of a Company Power of Attorney

Section 201F of the Corporations Act, stipulates that upon the death, mental incapacity or bankruptcy of a sole director, the appointment of a new director in the form of a personal representative or trustee may be permitted to administer the deceased’s estate or property. This person may appoint a person as the director of the company.

The legislation highlights that a personal representative or trustee may make this appointment. However, as the process of obtaining the grant of probate can generally take up to 3-6 months, a special application may be considered and made to the Court for a Special Grant of Administration to appoint a new director as swiftly as possible.

Section 74 of The Probate and Administration Act (NSW) provides that the Court can issue an urgent order to allow a person to act in the capacity of an Administrator for the deceased. The rationale underlying this provision lies in protecting the asset/s of a Company making orders which would preserve the estate’s assets or allow the business to continue running. This was exemplified in Estate of Frumar (2016) NSWSC 1116, where the deceased was the sole director and shareholder of his company, an ophthalmic practice. The key asset of the Estate related to the continuing practice of the Ophthalmic Surgery by the deceased. The Plaintiff and executor of the Estate sought a limited grant of administration for the deceased’s practice to be sold, to preserve the value of the practice. Allowing the application, the Court held that it would be in the best interests of the Estate’s beneficiaries and creditors to seek an appointment of a Special Administration to ensure that the value of the assets could be realised.

Conclusion

It is fundamental for directors of companies to deliberate on the making of plans to cover for the potential death or illness of a director. Therefore, where a company has a sole director, it is highly advised that a Company Power of Attorney is established, guaranteeing that the decision-making powers of a company are passed on in the event that a director should lose the capacity to make fundamental decisions.